Fed says economy is strong, inflation is 'eerily calm' Cheaper Asian imports offset rising U.S. wages

Economy

March 19, 1998|By BLOOMBERG NEWS

WASHINGTON -- The U.S. economic growth engine is still running strong enough to leave Federal Reserve policy-makers marveling that inflation pressures are "eerily calm."

Cheaper imports of computer components, chemicals and industrial commodities from Asia are helping to offset rising domestic wages triggered by worker shortages and strong consumer demand, the Fed said yesterday in its latest regional economic outlook.

"Pressures on product prices remain eerily calm, as domestic competition, productivity gains and the Asian situation help to constrain production costs," according to the Fed report that is commonly referred to as the beige book.

This lack of pricing pressure comes at a time when the economy, while showing "overall strength," may be slowing in some regions of the country. "A few [regional Fed banks] have noted some recent moderation in their rates of growth," the Fed said.

The report said exports to Asia are being hurt by the crisis. Still, the Fed "is in no hurry to lower interest rates" because labor costs continue to rise, said Kevin Flanagan, an economist at Morgan Stanley Dean Witter in New York.

In New England, demand at temporary employment agencies has pushed wages up by as much as 15 percent, the Fed said. "Industrial activity is on the rise in most parts of the country, with orders and production up," the Fed said.

And housing is "unseasonably hardy," buoyed by low interest rates and mild weather in many parts of the country.

The Fed's regional outlook is based on reports from the Fed's 12 district banks and is published eight times each year. The latest edition was compiled by the Federal Reserve Bank of St. Louis. Information was collected before March 9.

At its last policy session, Feb. 3-4, the FOMC left the overnight bank rate unchanged at 5.50 percent as it assesses the fallout from the Pacific Rim.

The Fed said the textile and clothing industries are taking the brunt of the impact from the Asia crisis. "Plant closings, falling sales and declining orders are common, reflecting both increased import penetration and a weakening of export demand," the Fed said.

U.S. companies have refined the way business is conducted, including investing billions of dollars in computer technology that allows efficient administration and production to offset higher labor costs.

Pub Date: 3/19/98

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